Financial Lessons From "It's A Wonderful Life"

You may have seen the classic film “It’s A Wonderful Life” that is often played over the holidays. Set on Christmas Eve in the 1940s, the story is told through a series of flashbacks, an alternate reality of what the world would look like if main character George Bailey had never been born, and, finally, a happy resolution in the present day.

Financial Crises Can Cause Tremendous Stress

George Bailey went berserk and contemplated suicide in a financial crisis. As the top executive of a local financial institution, Bailey Bros. Building and Loan Association, he was responsible for regulatory compliance. But when his Uncle Billy, a key employee, lost an $8,000 bank deposit on Christmas Eve (which coincided with a visit from the bank examiner), he faced criminal charges for embezzlement unless he could repay the money immediately. Though he was innocent, George questioned all of his life, career, and financial decisions that led to this situation.

Some Business Owners Don’t Have Your Best Interests at Heart

Mr. Henry F. Potter, a wealthy business owner who gained control over the local bank, didn’t care about those who lived and worked in the community. George seemed to be one of the few people who recognized the potential long-term effect of Potter’s power over the local economy. As a result, he spent a lot of energy protecting residents from Potter’s plans to control real estate and business development in the area. When his guardian angel showed George what the town would have looked like if he had never lived, you get an idea of the social and economic conditions that might exist if Potter's evil intentions went unchecked.

A Family Member May or May Not Be Your Best Employee

Uncle Billy, the brother of George’s father, nearly ruined the business. He drank on the job and didn't seem to be a productive employee even in the best of times. George could have hired a better employee or given him lesser responsibilities, somehow finding a way to show generosity in a way that didn’t compromise the business.

On the other hand, George's younger brother Harry Bailey seemed to be a valuable asset to his father-in-law’s glass manufacturing company. So, managing a successful business means being discriminating about your choice of employees.

Build an Emergency Fund

George was thrifty but didn't have an emergency fund. He worked for years to set aside the money to travel and attend college, so he was capable of saving. Though he didn't spend needlessly, he also didn't pay himself first, but rather put others' needs ahead of his own. As a result, he didn't have the means to save his company from disaster.

Not All Financial Institutions Are Run Alike

There was a significant difference between the lending policies of Potter’s bank and Bailey Bros. Building and Loan Association. When making a decision about financial services, compare interest rates, fees, etc., as they may vary widely among institutions.

Resourcefulness Can Save Money

Mary, George's wife, saved money by buying a fixer-upper and making repairs herself while she was raising their family. Even though this process was time consuming as well as frustrating to George at times, she was able to help provide shelter for herself, George, and their four children.

Progressive Lending Policies Can Fuel the Local Economy

Building and Loan Associations provided real estate loans to families at a time when short-term mortgage loans were the norm. When these loans were called, often after five years (as opposed to a more typical 30-year term today), most people couldn’t afford to pay the outstanding balance. As a result, banks foreclosed on many homes. The types of loans that George’s business provided gave the working class a better opportunity to own a home and helped to create a thriving local economy.

Companies Often Purchase the Competition to Gain Market Share

Potter attempted to buy members’ shares of the local building and loan association as a way to stifle competition. Later, he tried to lure George from the financial institution by offering him a compensation package that far exceeded the business valuation. Potter’s goal was to eliminate cheaper alternatives for area residents so that he could gain market share and later raise prices.

Welcoming New Industries to Town Can Help the Community (and You)

When Mary's former beau, Sam Wainwright, mentioned that his company was going to build a factory in Rochester, George asked him to use a vacant facility in Bedford Falls instead. Later, employees of Sam’s business were likely among those who helped bail out the Baileys.

Investing in New Technologies Could Increase Your Wealth

George turned down Sam’s offer to invest in his new plastics venture, which later made Sam very wealthy. He may not have had the extra money at the time, but just because he personally wasn’t going to leave Bedford Falls for a higher-paying and more exciting job shouldn’t have excluded the possibility of investing in a potentially ground-breaking business.

In Marriage, a Financially Compatible Spouse Is Crucial to Happiness

Husband-and-wife team George and Mary agreed on decisions that impacted the family’s financial status. They stood together as they made career and money moves that focused on community betterment rather than personal wealth, such as staying in their hometown and forgoing a honeymoon to keep the family business open. Most importantly, though, Mary understood the financial consequences of the couple’s priorities and was not bitter or regretful about the path that they chose.

Relationships Are More Valuable Than Money

When George saw the reality of life in his hometown without his presence, he realized that the investments he had made in relationships were worthy of setting aside travel plans and career ambitions. And, ultimately, he was redeemed by these relationships. Mary alerted friends and family to his troubles, and people brought cash to reconcile the building and loan association's shortfall.

The big take-away is that we can use our financial resources as well as our talent and time to lead impactful lives. Not only can we inspire and encourage our family and friends but we can influence the direction of our local communities and global events.

2) the single greatest financial lesson is in the Building and Loan lobby when George Bailey explains Fractional Reserve Banking (though he never uses that term), as he makes it clear that only a small fraction of depositors' money is actually held by the bank; the rest of it is loaned out for other peoples' mortgages. In a financial panic, like that of September 2008, fractional reserve banking, unwinding in reverse, was an unmerciful accelerating force in the developing catastrophe that fall.

3) An additional lesson comes from George Bailey's attempt to explain to the lobby crowd that Potter "isn't selling, Potter's buying". Financial panics always cause two things: a mass wave of assets being sold at fire-sale prices ... and an equal number of assets being bought (the same ones) by people who keep their wits about them, as they buy all those ridiculously cheap assets . . .

Great additions JL -- #2 is essential to financial systems today and #3 is the lesson that we all need to remember when investing.

M #3

My favorite line in that movie was when the Bailey's former housekeeper said, "I wuz saving this money for a deevorce in case I ever gets married!" A girl has to be prepared to take care of herself first.